The State of Digital Music Streaming

The State of Digital Music Streaming

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While the digital music landscape continues to shape-shift, a familiar pattern remains: Revenue from music needs to be divided amongst labels, artists, and distributors. However, it’s never been more complicated than now. Here’s a look at the current landscape (spoiler: artists still aren’t getting paid what they should be):

STREAMING CONTINUES TO RISE – BUT ARTISTS AREN’T BENEFITTING ENOUGH

Last year, music streaming boomed with a 54.5% increase over total streams in 2014, with a total of 78.6 billion audio streams as reported by Nielsen. Digital music sales however, were down 9.4%. “Music fans continue to consume music through on-demand streaming services at record levels, helping to offset some of the weakness that we see in sales,” says David Bakula, SVP Industry Insights for Nielsen. “The continued expansion of digital music consumption is encouraging.”

But we’ve all heard how little revenue artists see from streaming. A recent study shows major labels take nearly 45% of revenue, while their artists only take 7%. So while there’s an increase in revenue from streams overall, not enough of it is going to the artists who actually make the music.

MORE COMPETITION THAN EVER – WITH NO CLEAR WINNER IN SIGHT

The growth of digital streaming can be attributed to the rise in music companies. Most recently, Jay-Z’s “artist owned” TIDAL has owned headlines. Claiming to “forever change the course of music history”, the company launched with speculation and turmoil, changing CEOs within the first month, and experiencing strong public backlash. There’s still some time before we can truly label TIDAL a “flop”, and Jay-Z has asked for patience, tweeting “The iTunes Store wasn’t built in a day. It took Spotify nine years to be successful.” But needless to say, its much-hyped launch fell short of the massic blow needed to knock out the big players.

And of those major streaming players, Spotify currently reigns supreme. The company claims 86% of the on-demand music-streaming market in the U.S., with international numbers believed to be similar. Spotify reported over $1 billion in revenue last year and ended the year with 15 million paying subscribers, with an additional 45 million free users.

But there’s a company aiming its mark on Spotify’s top spot: None other than Apple. As we predictedlast year, Apple is reportedly ready to announce its own streaming service next week at WWDC. In hopes of regaining revenue lost from the decrease in iTunes sales, Apple will promote iTunes Radio to its hundreds of millions of users, most of whom already have their credit card information registered with the service. Could Apple shift the music industry again like iTunes did previously?

Add them to the list of companies like Pandora, SoundCloud, Rdio, YouTube, Last.fm, etc., and there’s a lot of players on the same court.

WHY THE OLD RECORD LABELS MAY DOMINATE THIS NEW GAME

Oh yeah – and those “big record labels” you’d always hear about “back in the day”? They’re still around. While consumer attention has been mainly directed at streaming services, the three surviving major labels (Warner, Universal, and Sony) have quietly claimed stakes in many of the rising digital music startups. In exchange for rights to stream music they own, these labels have taken shares of companies like Spotify and Rdio, and even non-streaming digital entertainment companies like Shazam. And unsurprisingly, this ownership benefits artists in no way at all. The major labels even have the right to buy more shares at discounted prices down the line, putting a strangle on the growth of these companies. So no matter which service wins the streaming game, the labels may be the ultimate winners, claiming both music royalties and company shares. This dynamic will continue shaping the way we consume music.

Despite this continued influence of the major labels, many believe we’ll see new opportunities for musicians. As Spotify founder and CEO Daniel Ek argues, “There’s going to be a multitude of business models that will try to address [issues], but if you do that, the entire music industry will be much bigger than it’s ever been — even than in the past glory days. In that world, artists are of course going to make even more money.”

However, if things continue how they have, companies and labels will primarily focus on increasing their own revenues, not those of artists. And that doesn’t sound very good for anyone.

Vanessa Camones
Staff Writer
Vanessa has been working in high tech public relations and strategic communications for over 16 years. In 2007, she founded theMIX agency, a firm that specializes in integrated communications, digital strategy, developer relations and event production. In 2011 theMIX agency has grown to represent NYC, LA, PDX and SF markets.Her expertise spans digital content, security, mobile/wireless, gaming, entertainment and consumer internet.
Follow me on twitter @vanessacamones